Multi-million pound UK government loan to Tata Steel may be the incentive to keep Port Talbot open

Tata Steel had on 30 March announced it would sell its loss-making UK steel business, including Port Talbot.Reuters

A multi-million-pound loan from the UK government seems to be just about the right incentive to convince Tata Steel to keep the Port Talbot steel plant running. It is believed that Tata Steel UK's parent company in India is scheduled to make a final decision in the same week that the EU referendum is due to take place (23 June).

The Financial Times said that the company was forced to turn to the government for further financial incentives to keep the plant open after it was unable to secure promises from prospective buyers to keep Port Talbot open for more than three years. The amount and other details of the loan to be offered to Tata Steel UK is not known.

However, the FT also said that the deal is believed to involve "hundreds of millions of pounds" and that the state loan will be extended on commercial terms. The loan could partly replace the existing £900m (€1,161, $1,299) loan that the parent company had extended to Tata Steel UK.

A person involved in the talks said that any state loan would be less than £900m because it may breach state-aid rules. Reducing Tata Steel UK's debt interest payments will make a significant difference to the running cost of the plant, the source said.

"Effectively, if government could give them a loan to get rid of the other loan, then they would think about it very seriously," a person close to Tata said. Last year alone, Tata UK paid almost £200m in debt interest, although not all of this was in relation to the loan from its parent company.

The newspaper also noted that the launch of a government consultation into possible legal changes to the steel company's pension fund would help cut its liabilities by several billion pounds. The move is seen as "convincing Tata to abandon the sales process and keep hold of the plant," the paper added.

The Tata board is due to meet in Mumbai during the week of the UK's referendum on 23 June. The exact date is not immediately known. A person close to the company told the Financial Times: "Whatever happens, Tata will be there to stay."

The government has been working hard to try and keep the Talbot plant open. The company's UK operations employs 15,000 people in factories around the country.

Tata Steel has already sold its Scunthorpe plant, for just £1, to Greybull Capital. Of the seven bids received for Port Talbot, several dropped out or were rejected. Those that were under consideration were felt to not "offer viable ownership of the site for the long term," FT said, quoting a person close to Tata. A board meeting in Mumbai last week failed to finalise a shortlist of buyers.

"Nobody could give them a guarantee that they would stay for more than two or three years," said the source. "That is one of the reasons Tata has decided to stay. They don't want to be blamed for selling short."

News of state loan does not go down well

News of the loan however has not gone down well. A person, going by the name of OJ, said: "The Tatas will be laughing all the way home!"

Another FT reader, Adrian Bird, asked what was the advantage of a government loan and how "likely is that it will ever be repaid?" He continued: "I guess the sabre rattling about a potential sale has at least enabled Tata to escape their pension commitments and instead pass them onto the UK taxpayer. Smart move by Tata, perhaps not the best negotiation from Mr Javid?"

Both Prime Minister David Cameron and Business Minister Sajid Javid earlier rejected calls for the nationalisation of Tata Steel's UK operations. However, in April, the government promised a package of financial support worth "hundreds of millions of pounds" to potential buyers of the steel operations. Javid even said the government was willing to take up a minority stake of up to 25% in any rescue deal.